This PDF is a selection from an out-of-print volume from the National Bureauof Economic Research

Volume Title: Small Differences That Matter: Labor Markets and IncomeMaintenance in Canada and the United States

Volume Author/Editor: David Card and Richard B. Freeman

Volume Publisher: University of Chicago Press

Volume ISBN: 0-226-09283-6

Volume URL: http://www.nber.org/books/card93-1

Conference Date: Jan 23-25, 1991

Publication Date: January 1993

Chapter Title: Immigration Policy, National Origin, and Immigrant Skills:A Comparison of Canada and the United States

Chapter Author: George J. Borjas

Chapter URL: http://www.nber.org/chapters/c11144

Chapter pages in book: (p. 21 - 44)

1 Immigration Policy, NationalOrigin, and Immigrant Skills: AComparison of Canada and theUnited States

George J. Borjas

1.1 Introduction

Both Canada and the United States are important participants in the immi­gration market. These two countries admitted over 12 million immigrants be­tween 1959 and 1981. In recent years, their immigration policies have di­verged considerably. Prior to the early 1960s, both Canada and the UnitedStates used national origin to allocate the scarce number of visas among themany applicants, preferring persons originating in northwestern Europeancountries.) During the 1960s, the two countries enacted major immigrationpolicy changes. As a result, the United States began to award entry permitson the basis of the applicant's family ties with U.S. residents or citizens,whereas Canada began to allocate visas on the basis of the applicant's observ­able socioeconomic characteristics.

The historical comparison of immigrant skills and labor market perform­ance between Canada and the United States, therefore, can provide usefullessons in the benefits and costs of skill-based immigration policies. Earlierwork has documented important differences between the Canadian and U. S.experiences. 2 This paper continues this line of research and documents thatmany of the differences in the economic impact of foreign-born workers onCanada and the United States can be understood in terms of a simple hypoth-

George J. Borjas is professor of economics at the University of California, San Diego, and aresearch associate of the National Bureau of Economic Research.

The author is grateful to Michael Abbott for useful comments and to the National ScienceFoundation (grant no. SES-8809281) for financial support.

1. There was also a sizable transnational migration between Canada and the United States. Thesize and skill composition of this flow is discussed in detail below.

2. See Abbott and Beach 1987; Bloom and Gunderson 1991; Borjas 1990; Chiswick 1987; andTandon 1978.

21

22 George J. Borjas

esis: the national-origin composition of immigrants in the two host countriesis different.

The source-country distribution of immigrant flows plays a crucial role be­cause of substantial dispersion in skills and labor market performance amongnational-origin groups (Borjas 1987; Jasso and Rosenzweig 1986). In general,immigrants originating in industrialized economies are more skilled and aremore successful in the host country's labor market than are immigrants origi­nating in the less-developed countries. The empirical analysis below showsthat the observed differences between Canada and the United States in theaverage skill level of foreign-born workers can mostly be "explained" by dif­ferences in the national-origin mix of the immigrant flows admitted into thetwo countries.

This finding raises important questions about the efficacy of Canada's pointsystem. My empirical analysis indicates that the point system works not be­cause it attracts more skilled workers from a particular source country, butbecause it alters the national-origin mix of the immigrant flow. 3 This implica­tion of the empirical evidence provides a very different understanding of howa point system increases the average skills of foreign-born workers.

1.2 Immigration Policies between 1960 and 1980

Prior to the 1965 amendments to the Immigration and Nationality Act, U.S.immigration policy was guided by the national-origins quota system. 4 Entryvisas allocated to countries in the Eastern Hemisphere depended proportion­ately on their representation in the national-origin composition of the U.S.population in 1920. Because the ancestors of the great majority of U.S. resi­dents originated in northwestern Europe, the United Kingdom was allocated65,721 visas (almost half of the 150,000 available visas) and Germany wasallocated 25,957 visas, whereas Italy was allocated 5,802 and Russia wasallocated 2,784 visas. To prohibit the entry of Asian immigrants, Asian coun­tries were generally allocated 100 visas per year.

The national-origins quota system applied only to visa applicants originat­ing in countries in the Eastern Hemisphere. Applicants from North and SouthAmerica were exempt from the quotas and faced no numerical restrictions onthe number of visas, presumably because of the close economic and politicalties between the United States and its geographic neighbors. These visas wereawarded on a first-come, first-served basis as long as the applicants satisfied along list of requirements regarding their health and their political and moralbackgrounds.

3. See Duleep and Regets (1990) for additional evidence that the skills of immigrants fromspecific source countries vary little between Canada and the United States.

4. Borjas (1990) presents a comparative review of Canadian and U.S. immigration policies.See also Boyd (1976) and Keely and Elwell (1981).

23 Immigration Policy, National Origin, and Immigrant Skills

The 1965 amendments (and subsequent revisions) regulated the process oflegal immigration throughout the 1970s and 1980s. Under the 1965 amend­ments, the United States permitted the entry of 270,000 persons per year, withno more than 20,000 immigrants originating in any particular country oforigin. Instead of emphasizing national origin, the 1965 amendments madefamily reunification the central objective of immigration policy. This was ac­complished through several provisions. First, 80 percent of the 270,000 nu­merically limited visas were awarded to "close" relatives of U.S. citizens orresidents. These close relatives included unmarried adult children of U.S. cit­izens, siblings of adult U. S. citizens, and spouses of resident aliens. The re­maining 20 percent of the visas were allocated to persons on the basis of theirskills. A large number of these 54,000 visas, however, went to the families ofthe skilled workers who qualified for the visa.

Furthermore, parents, spouses, and minor children of adult U. S. citizenscould bypass the numerical restrictions specified in the legislation. These "im­mediate" relatives automatically qualified for entry and did not have to applyfor one of the 270,000 numerically limited visas. By the late 1980s, moreimmigrants were entering under this single provision of the law than under allthe family reunification preferences combined.

Until 1961, Canadian immigration policy, like that of the United States,permitted the entry of persons originating in only a few selected countries,such as the United Kingdom, Ireland, and the United States, or of personswho were dependents of Canadian residents. Major policy changes in 1962and 1967 removed the national-origin restrictions and shifted the emphasis inthe visa allocation system toward skills requirements. Under the new regula­tions, applicants for entry into Canada were classified into three categories:sponsored immigrants (which included close relatives of Canadian residents),nominated relatives (which included more distant relatives of Canadian resi­dents), and independent immigrants.

Beginning in 1967, visa applicants in the last two of these categories werescreened by means of a point system. Potential immigrants were graded andgiven up to 100 points. Points were awarded according to the applicant's edu­cation (a point per year of schooling, up to 20 points), occupational demand(up to 15 points if the applicant's occupation was in strong demand in Can­ada), age (up to 10 points for applicants under the age of 35, minus 1 pointfor each year over the age 35), arranged employment (10 points if the appli­cant had a job offer from a Canadian employer), a "personal assessment" bythe immigration officer based on the applicant's motivation and initiative (upto 15 points), and other factors. Generally, an applicant needed to obtain 50out of the 100 total points in order to pass the test and be awarded an entryvisa.

In 1976, Canada amended its Immigration Act and made it easier for thefamilies of Canadian residents to migrate there. This was accomplishedthrough a revised point system that, in essence, awarded extra points to nom-

24 George J. Borjas

inated relatives. To some extent, Canada enacted a weak version of the 1965amendments eleven years after the United States.

Certainly the most noticeable consequence of the major policy shifts inCanada and the United States is the change that occurred in the national-originmix of the immigrant flow. Table 1.1 summarizes the national-origin distribu­tion of the immigrant flows admitted between 1959 and 1981. During the1960s, about 40 percent of immigrants entering the United States originatedin Europe. This had declined to 17 percent by the 1970s. In contrast, only12.8 percent of immigrants in the 1960s originated in Asian countries, andthis tripled to 37.2 percent by the 1970s.

Similar changes were also observed in Canada. For instance, 70 percent ofimmigrants entering Canada in the 1960s originated in the United Kingdomor in other European countries. During the 1970s, the fraction of the immi­grant flow originating in Europe was cut by half, to 37 percent. On the otherhand, the fraction of immigrants originating in Asia almost quadrupled, from8 percent in the 1960s to 29 percent in the 1970s.

Although the trend away from European immigration and toward Asian im­migration characterizes the experience of both Canada and the United States,it is important to note that there were significant differences in the national­origin mix of the immigrant flow between the two host countries in the 1970s.The fraction of immigrants originating in Europe was more than twice as large

Table 1.1 Migration Flows into Canada and the United States, 1959-81

1959-70 1971-81

Number % of Number % ofOrigin (in l000s) Total (in l000s) Total

Canada

Africa 34.1 2.1 71.5 4.6Americas 283.5 17.5 427.9 27.3Asia 136.3 8.4 457.3 29.1United Kingdom 381.2 23.5 237.8 15.2Europe (excluding United Kingdom) 745.4 46.0 340.1 21.7Oceania and other 40.2 2.5 34.3 2.2

Total 1,620.7 1,568.9

United States

Africa 43.2 1.1 106.5 2.0Americas 1,792.0 46.6 2,175.7 42.7Asia 492.2 12.8 1,898.1 37.3United Kingdom 268.8 7.0 138.5 2.7Europe (excluding United Kingdom) 1,228.2 31.9 729.5 14.3Oceania and other 23.4 0.6 41.5 0.8

Total 3,847.8 5,089.8

Sources: Leahy (1983); U.S. Immigration and Naturalization Service (various years).

25 Immigration Policy, National Origin, and Immigrant Skills

in Canada, while the fraction of immigrants originating in the Americas (pri­marily Latin America) was almost three times as large in the United States. Iwill show that these national-origin differentials explain a major portion of thegap in average skills between immigrants in Canada and the United States.

1.3 Education and the "Choice" of a Host Country

As a result of changes in immigration policy (as well as changes in eco­nomic conditions in the host and source countries), the relative size and skillcomposition of immigrant flows into Canada and the United States changeddrastically in recent years. This section and the next describe the extent ofthese changes.

Consider the population of persons who immigrate at any given time periodinto either Canada or the United States. These data can be used to calculatethe fraction of immigrants who "choose" one country over the other. Table 1.2reports the fraction of immigrants, by cohort and educational attainment, whomigrated to the United States.

I estimate the fraction of immigrants who chose the United States using thepublic use samples of the 1971 and 1981 Canadian censuses and the 1970 and1980 U.S. censuses. The 1971 data are drawn from a 1/100 random sample ofthe Canadian population, while the 1981 data are drawn from a 2/100 sample.The 1970 U.S. census data for immigrants are a 2/100 random sample of theimmigrant population, while the 1980 data are a 5/100 sample. The 1970/71censuses are used to estimate the choice probabilities for the cohorts that mi­grated during the 1960s, and the 1980/81 censuses are used for estimating thechoice probabilities of the cohorts that migrated in the 1970s. 5 Finally, theprobabilities are calculated in the sample of immigrants (both men andwomen) aged 18-64.

Between 1960 and 1980, 81.5 percent of the immigrants "chose" to residein the United States. Note, however, that this statistic increased rapidly duringthe period. In the early 1960s, 77.2 percent of the sample migrated to theUnited States, while in the late 1970s 86.1 percent chose the United States.This reallocation of immigrants in the North American continent is due topolicy changes in the United States that increased the annual number of im­migrants, while the size of the annual immigrant flow in Canada remainedrelatively constant (see table 1.1).

A more interesting result revealed by table 1.2 concerns the differentialtrends in the choice probability across schooling groups. Although the frac­tion of immigrants ending up in the United States increased in most schooling

5. The intervals reporting the immigrant's year of entry into the host country differ between theCanadian and u.s. censuses. For the post-1960 cohorts, however, these variations are relativelyunimportant. The probabilities reported in table 1.2 weigh the observations in each of the censusesso as to ensure that the underlying time period defining each cohort has the same duration in thetwo host countries.

26 George J. Borjas

Table 1.2 Immigration to Canada and the United States, by Cohort andEducation (fraction of immigrants "choosing" the United States)

Education

Cohort

1960-641965-701970-741975-80All

Less thanHigh School

.721

.719

.821

.869

.815

HighSchool

.864

.780

.798

.851

.825

SomeCollege

.750

.578

.740

.831

.765

CollegeGraduate

.824

.770

.828

.890

.849

All

.772

.719

.804

.861

.815

Sources: The data for the 1960-64 and 1965-70 cohorts are drawn from the 1971 Canadiancensus and the 1970 U.S. census. The data for the 1970-74 and 1975-80 cohorts are drawn fromthe 1981 Canadian census and the 1980 U. S. census. The statistics are calculated in the sampleof immigrants aged 18-64.

groups, the increase was largest among the least educated. In the early 1960s,72.1 percent of immigrants who did not have a high school diploma migratedto the United States. By the late 1970s, this statistic was 86.9 percent, anincrease of almost 15 percentage points. In contrast, in the early 1960s, 82.4percent of immigrants with a college diploma chose the United States, but bythe early 1970s, the fraction increased to only 89.0 percent, less than 7 per­centage points.

Immigration policy reforms in Canada and the United States are probablyresponsible for these trends. Prior to the enactment of the point system inCanada, relatively more college graduates "chose" the United States as a des­tination point. By the late 1970s, after Canada began to restrict the entry ofhigh school dropouts, the fraction of persons choosing the United States wasthe same for high school dropouts as for college graduates.

1.4 Immigrant Earnings in Canada and the United States

Suppose two census cross-sections are available in a particular host country(the 1971 and 1981 censuses in Canada, or the 1970 and 1980 censuses in theUnited States), and the following regression model is estimated within a hostcountry:

(1) log wij = XJ3; + (XtYj + cx2Y; + .L ~tCt + ~;7rj + Eij'

and

(2)

where W;j is the wage rate of immigrantj;wnf is the wage rate of native persone; X is a vector of socioeconomic characteristics (e.g., education, age); Y is avariable measuring the number of years that the immigrant has resided in the

27 Immigration Policy, National Origin, and Immigrant Skills

host country; C is a vector of dummy variables indicating the calendar year inwhich the migration occurred; and 'TT is a dummy variable set to unity if theobservation is drawn from the 1980/81 census, and to zero otherwise. Thevector of parameters (a l ,(2), along with the age coefficients in the vector X,measures the assimilation effect (Le., the rate at which the age-earnings pro­file of immigrants is converging to the age-earnings profiles of natives), whilethe vector of parameters ~ estimates the cohort effects. The period effects aregiven by 'Yi for immigrants and by 'Yn for natives.

It is well known that the parameters of the system in (1) and (2) are notidentified unless some normalization is made about either the aging, cohort,or period effects (Borjas 1991). In other words, two cross-sections cannotidentify three separate sets of coefficients, and something must be assumedabout one of the effects in order to identify the other two. I chose the normal­ization that the period effect experienced by immigrants ('Y) is identical to theperiod effect experienced by natives ('Yn)' This normalization, of course, im­plies that the relative wage differential between immigrants and natives is in­variant to the business cycle.

The data used to estimate (1) and (2) are drawn from the Canadian and U.S.censuses described in section 1.3. The regression analysis is restricted toprime-age men (aged 25-64) who are not self-employed, whose records re­port the relevant information needed to calculate a wage rate in the year priorto the census, and who are not residing in group quarters. Although all immi­grant observations are used in the analysis, I use random samples of the nativepopulation in the United States because of the large number of natives sur­veyed. 6

The mean characteristics in these samples are reported in table 1.3 for thepost-1960 cohorts. The descriptive data yield a number of important results.The U.S. census clearly documents the importance of cohort effects in immi­grant labor market performance. The most recent arrivals in the 1970 census(i.e., the 1965-69 cohort) have - 0.3 fewer years of education than nativesand earn about 16 percent less than natives. By 1980, the most recent arrivals(i.e., the 1975-79 cohort) have -0.8 fewer years of schooling and earn al­most 30 percent less than natives.

Remarkably, despite the enactment of the point system, the Canadian datashow a somewhat similar pattern. The educational attainment of the most re­cent immigrants in 1971 is 12.0 years, while that of the most recent immi­grants in 1981 is 12.6 years, an increase of over half a year in schooling. Atthe same time, however, the educational attainment of recent immigrants rel­ative to Canadian natives declined from a 2. I-year advantage in 1971 to a 1.3­year advantage in 1981, and the relative wage of recent immigrants decreasedfrom - 2. 1 percent in 1971 to - 17.2 percent in 1981. Although the educa-

6. The 1970 U.S. native sample is a 111,000 extract, while the 1980 U.S. native sample is a112,500 extract.

28 George J. Borjas

Table 1.3 Education and Wages of Immigrants in Canada and the UnitedStates, by Cohort

1971 1981

Relative Relative Relative RelativeCohort Education Education Wage Education Education Wage

Canada

1960-64 10.506 0.599 -.008 11.217 -0.086 .048(4.51) ( -0.44) (- 0.94) (3.37)

1965-70 12.043 2.136 -.021 12.351 1.048 .065(21.34) (-1.51) (15.69) (6.24)

1970-74 12.370 1.067 -.084(13.55) (- 6.83)

1975-80 12.603 1.300 - .172(16.32) (- 13.86)

United States

1960-64 10.959 -0.556 -.051 11.913 -0.793 .009(- 9.21) (- 5.79) (-14.91) (1.18)

1965-70 11.179 -0.336 -.160 11.418 -1.288 -.069(- 6.01) (-19.75) (- 25.75) (- 9.90)

1970-74 11.091 -1.614 -.200(-33.31) (-29.43)

1975-80 11.859 -0.846 - .299( -17.54) (- 44.28)

Notes: The t-ratios are reported in parentheses. The sample sizes are 1971 Canadian census,8,018 immigrants and 28,049 natives; 1981 Canadian census, 17,417 immigrants and 61,205natives; 1970 U.S. census, 32,491 immigrants and 20,978 natives; 1980 U.S. census, 134,254immigrants and 15,071 natives.

tional attainment of successive immigrant waves rose over time, the educa­tional attainment of the native Canadian population was rising even faster.

This result, however, should not obscure the fact that the point system "at­tracted" a more educated immigrant flow into Canada. In the early 1960s,prior to the immigration reform in Canada, the typical immigrant enteringCanada had 0.4 fewer years of schooling than did the typical immigrant enter­ing the United States (where the educational attainment is measured as of1970/71). The Canadian disadvantage in immigrant schooling disappeared bythe late 1960s, when the typical new immigrant in Canada had almost 1 yearmore schooling than did the typical new immigrant in the United States, andthis gap remained roughly constant throughout the 1970s.

The dependent variable in equations (1) and (2) is the logarithm of the wagerate. I use two different specifications for the vector X. The first includes anintercept, age, and age squared, while the second adds education, marital sta­tus, whether the individual lives in a metropolitan area, and whether the indi­vidual's health limits work (available only for the United States). The esti­mated regressions are presented in appendix Table 1A.1 for Canada and 1A.2

29 Immigration Policy, National Origin, and Immigrant Skills

Table 1.4 Predicted Entry Wages and Growth Rates for Immigrants in Canadaand the United States

Canada U.S.

(1) (2) (1) (2)

Cohort196~ - .0325 -.0242 -.0975 -.0932

( - 1.16) ( -0.90) (-5.18) (- 5.22)1965-69 .0045 -.0255 - .1547 - .1200

(0.20) (-1.13) (- 9.23) ( -7.53)1970-74 - .1043 - .1320 - .2353 - .1632

( -4.33) (- 5.69) (- 15.08) ( -10.97)1975-80 - .1531 - .1839 -.2941 - .2290

( -7.32) (-9.11) (- 20.18) (-17.21)Growth rate at y = 10 years .0032 .0006 .0051 .0054

(2.09) (2.81) (5.01) (9.23)Growth rate at y = 20 years .0033 .0008 .0020 .0027

(2.08) (2.75) (5.09) (9.21)Holds constant demographic No Yes No Yes

characteristics

Notes: The t-ratios are reported in parentheses. The vector X in the regressions underlying theestimates in column 1 includes age and age squared. The regressions in column 2 add education,marital status, metropolitan residence, and an indicator of whether health limits work (availableonly in the United States).

for the United States. Table 1.4 summarizes the implications of the regres­sions by reporting the wage differential between immigrants and natives at thetime of entry into the host country (assuming immigration takes place at age20), and the rate of growth of immigrant earnings relative to natives at y = 10and y = 20. 7

The results indicate that immigrants in Canada have substantially higherentry wages (relative to natives) than immigrants in the United States if theregressions do not control for differences in educational attainment and othersocioeconomic characteristics. For instance, the typical person who migratedto Canada in the late 1970s earned about 15 percent less than natives at thetime of arrival, while the typical person who migrated to the United States atthe same time earned about 29 percent less than natives. The superior eco­nomic performance of immigrants in Canada, however, largely disappearsafter controlling for differences in observed demographic characteristics (par­ticularly education) between immigrants and natives in each host country. Thepredicted difference between the (log) wage of immigrants who arrived in the

7. The growth rates are evaluated by calculating the slope of the age earnings profile at therelevant age and years-since-migration values. The statistics reported in table 1.4 differ slightlyfrom those that can be calculated from tables 1A. 1 and 1A. 2 because of rounding errors in thereporting of the regression coefficients.

30 George J. Borjas

late 1970s and demographically comparable natives is -0.18 in Canada and- 0.23 in the United States. The skill-filtering explicit in Canadian immigra­tion policy, therefore, leads to higher-wage immigrants not because of unob­served factors such as ability and training, but because of more education.

The data in table 1.4 indicate that the enactment of a point system in Can­ada could not prevent a decline in the relative skill level of immigrants acrosssuccessive waves. In both countries, the entry wage of immigrants is higherfor the earlier cohorts than for the later cohorts. The decline in immigrantskills (as measured by the unadjusted wage), however, is much steeper in theUnited States, where the (relative) entry wage fell from - 0.10 in the early1960s to - 0.29 in the late 1970s. By contrast, in Canada, the entry wage fellfrom - 0.03 to - 0.15 during the same period.

1.5 National Origin and the Canada-U.S. Skill Differential

This section shows that one single factor, the different national-origin mixof immigrants in Canada and the United States, explains most of the differ­ences in skills and relative wages of the foreign-born between these two coun­tries. In section 1.2 I documented that the national-origin mix of the immi­grant flow differs between Canada and the United States. Substantialdispersion in skills and wages also exists across national-origin groups in eachof the host countries.

I focus on three measures of skills: years of educational attainment, the logwage rate (relative to natives), and the log wage differential between immi­grants and natives adjusted for differences in socioeconomic characteristics(such as education and age) between the two groups. To calculate the adjustedwage, I first estimated log wage regressions separately for each national origingroup and for natives in each of the four censuses available (two censuses perhost country). Using the estimated coefficients, I calculated the wage differ­ential between each immigrant cohort and natives using the mean of the socio­economic characteristics observed in the immigrant population. The statisticsfor the cohorts that migrated during the 1960s are obtained from the 1970/71censuses, while the statistics for the cohorts that migrated in the 1970s areobtained from the 1980/81 censuses. To illustrate the large dispersion thatexists across national-origin groups, table 1.5 reports the educational attain­ment, relative wage, and adjusted wage for the cohort that migrated in the late1970s for fifteen national-origin groups (which are the fifteen groups that canbe matched exactly among the four censuses).8

The average educational attainment level of immigrants from Greece whoarrived in Canada in the late 1970s was 8.3 years, while the average education

8. The U.S. census reports many more source countries than the Canadian census does. Themain drawback of the Canadian census is that the specific source country of Asian or Latin Amer­ican immigrants is not identified.

31 Immigration Policy, National Origin, and Immigrant Skills

Table 1.5 Schooling and Wages by National Origin, 1975-80 Cohort

Canada U.S.

Relative Adjusted Relative AdjustedCountry of Origin Education Wage Wage Education Wage Wage

EuropeBelgium 16.600 .661 .411 16.239 .456 .293France 13.3598 -.OO4a - .0378 15.626 .252 .161Germany 13.705a .084 -.008 15.237 .293 .171Greece 8.27ta -.482 - .310 11.058 - .311 - .183Ireland 13.333 -.443 - .514 13.803 - .114 -.121Italy 9.833 - .212 -.153 10.567 -.133 -.065Netherlands 13.333a -.194a -.2358 15.939 .311 .172Poland 14.5QOa .0968 - .0498 12.742 -.342 - .339United Kingdom 13.0688 .0628 - .021a 15.047 .221 .118USSR 14.455 -.099 - .311 14.328 -.257 - .386Other Europe 9.648a - .101 -.026 11.118 - .141 - .061

Africa 13.772a - .159 -.264 15.362 -.210 - .268Asia 12.8608 -.290 -.348a 13.966 -.250 - .294Latin America 11.7068 - .3548 - .369 8.551 - .532 - .365Other 12.698 -.062 - .103 12.017 -.230 -.126

8The difference between Canada and the United States is significantly different from zero at the 5 percentlevel.

level of immigrants from Belgium was 16.6 years. Similarly, in the UnitedStates, the average education level of immigrants who arrived in the sameperiod ranged from 8.6 years for immigrants from Latin America to 16.2years for immigrants from Belgium. The relative wage of immigrants exhibitssimilar dispersion across national origin groups. The relative (log) wageranges from -0.48 (Greek immigrants) to 0.66 (Belgian immigrants) in Can­ada, and from - 0.53 (Latin American immigrants) to 0.46 (Belgian immi­grants) in the United States.

As suggested by these descriptive data, there is a very strong correlationbetween the skills of national-origin groups in Canada and the skills of thecorresponding group in the United States. Table 1.6 presents regressions thatdescribe the relationship between the skills of national-origin groups acrosshost countries. These regressions are of the form

(3)

where Yiu is the value of the skill variable for immigrants belonging tonational-origin group i who migrated to the United States at time t; Yic(t) is thevalue of the skill variable for the same immigrant cohort in Canada. 9 The

9. Because the dependent variables are themselves estimates of the true means, the regressionsare estimated using generalized least squares. It is worth noting, however, that the unweightedregressions lead to the same qualitative conclusions as the GLS regressions.

32 George J. Borjas

regressions reported in table 1.6 provide one very interesting insight. For thepost-1965 cohorts, with only one exception, the slope coefficient PI is insig­nificantly different from unity, and the intercept is insignificantly differentfrom zero. Moreover, the explanatory power of these regressions is quite high:the R2 is on the order of .5 to .8. These results imply that the expected skillsor wages of a specific national-origin group in Canada and the United States(in the 1965-80 period) are identical. There is no evidence, therefore, to sug­gest that the point system generated a more skilled flow into Canada fromwithin a source country.

The finding that, on average, immigrants in Canada are more skilled thanimmigrants in the United States is attributable to another factor. I now showthat the different national-origin composition of immigrant flows in the twocountries accounts for much of the Canadian advantage. Let Y/t) be the aver­age value for a particular characteristic (i.e., education or wage) observed inthe immigrant flow in year t in host country r. By definition, Yr(t) can bewritten as

(4) Y/t) L Pjr(t) Yjr(t),j

Table 1.6 Relationship between Skills and Wages of National-Origin Groups inthe United States and Canada, by Cohort

Variable 1960-64 1965-70 1970-74 1975-80

Dependent variable = mean education of national-origin group in United States

Intercept

Canada mean

3.864a

(1.298)0.670b

(0.120).708

0.471(1.646)0.954

(0.139).785

-0.502(2.963)1.072

(0.241).602

- 1.832(4.556)1.196

(0.366).451

Dependent variable = mean wage of national origin group in United States

Intercept .040 -.016 .070a

(.030) (.043) (.033)Canada mean 0.349b 0.910 1.469b

(.197) (.283) (.215)R2 .195 .443 .782

Dependent variable = adjusted wage of national origin group in United States

.063(.057)1.275(.228).707

Intercept .043 .032(.027) (.042)

Canada mean 0.426 1.017(.259) (.259)

R2 .173 .543

.031(.027)0.799(.128).751

.065(.042)1.068(.150).797

Note: The standard errors are in parentheses.

aSignificantly different from zero at the 5 percent level.

bSignificantly different from one at the 5 percent level.

33 Immigration Policy, National Origin, and Immigrant Skills

where Yjr(t) is the average value for the labor market characteristic observedamong persons who migrated from source country j into host country r in yeart; and Pj/t) is the fraction of the host country's immigrant flow in year t origi­nating in source country j.

It is useful to define the average labor market performance that would havebeen observed if a different national-origin mix had migrated to host countryr, such as the national-origin mix observed in host country s, Pjit). This isgiven by

(5) Y(t,S) = L Pj/t) yj/t).j

The impact of a changing national-origin mix is then given by the differencebetween equations (4) and (5):

(6) Y/t) - Y(t,s) = L Yjr(t) [Pjr(t) - Pjs(t)].j

The decomposition implicit in equation (6) is similar to that commonlyused to measure wage discrimination (Oaxaca 1973) and has its roots in thestatistical literature (Kitigawa 1955). Using this methodological framework,table 1.7 decomposes the differences observed in educational attainment andrelative wages between Canada and the United States for each of the immi­grant waves arriving between 1960 and 1980.

To understand the nature of the results, it is instructive to consider first thecohort that migrated to Canada or the United States in the late 1970s. Theaverage education level of those who migrated to Canada was 12.6 years,while the average education level of those who migrated to the United Stateswas 11.9 years, a difference of 0.7 years. Column 3 of table 1.7 reports theprediction of what the education level of immigrants in Canada would havebeen had Canada admitted immigrants on the basis of the U.S. national-originmix. In other words, it presents the prediction from equation (5) using the1975-80 means of educational attainment in Canada and the 1975-80national-origin mix observed in the United States. This prediction is 12.3years, so that the average educational attainment of this immigrant wavewould have been 0.3 years lower. National-origin differences, therefore, ex­plain almost half of the observed gap between the educational attainment ofthe 1975-80 immigrant wave in Canada and the United States.

It is also possible to estimate what the average educational attainment ofimmigrants in the United States would have been had the United States ac­cepted immigrants on the basis of Canada's national-origin mix. In otherwords, equation (5) is estimated using the 1975-80 means of educational at­tainment in the United States and the national-origin mix observed in Canadain 1975-80. This prediction, reported in column 4 of table 1.7, is 13.1 years.In other words, the educational attainment of U.S. immigrants would haveincreased from 11.9 to 13.1 years due solely to changes in the national-origin

Tab

le1

.7D

ecom

posi

tion

of

Dif

fere

nces

betw

een

Can

ada

and

the

Uni

ted

Sta

tes

Pre

dict

edA

vera

ges

Can

ada

u.s.

IfC

anad

aIf

U.S

.H

adA

vera

geA

vera

geH

adU

.S.

Mix

Can

ada

Mix

Coh

ort

(1)

(2)

(1)

-(2

)(3

)(4

)(4

)-

(2)

(1)

-(3

)

Edu

cati

on19

60-6

410

.506

10.9

59-0

.45

311

.202

10.7

68-0

.19

1-0

.69

619

65-7

012

.043

11.1

790.

864

11.8

1811

.694

0.51

50.

225

1970

-74

12.3

7011

.092

1.27

812

.042

12.6

021.

510

0.32

819

75-8

012

.603

11.8

600.

743

12.3

0213

.102

1.24

20.

301

Wag

e19

60-6

4-.

00

8-

.051

.043

.053

.038

.089

-.0

61

1965

-70

-.0

21-.

16

0.1

39-.

08

7-.

04

4.1

16.0

6619

70-7

4-.

08

4-.

20

0.1

16-.

17

4-.

07

0.1

30.0

9019

75-8

0-

.172

-.2

99

.127

-.2

54

-.1

61.1

38.0

82

Adj

uste

dw

age

1960

-64

-.0

49

-.0

63

.014

-.0

63

.029

.092

.014

1965

-70

-.0

97

-.1

59

.062

-.1

55

-.0

70

.089

.058

1970

-74

-.1

61-

.159

-.0

02

-.2

33

-.0

94

.065

.072

1975

-80

-.2

24

-.2

58

.034

-.2

93

-.1

70.0

88.0

69

35 Immigration Policy, National Origin, and Immigrant Skills

mix. This increase is greater than the observed difference between Canada andthe United States, so that national origin overexplains the observed difference.

Table 1.7 reports a similar decomposition for both wages and adjustedwages for the 1975-80 cohort, as well as for all other post-1960 cohorts. It isevident that differences between the two host countries in the national-originmix are largely responsible for the post-1965 differences in educational attain­ment, wages, and adjusted wages. For instance, the difference in relativewages between the immigrant wave that arrived in Canada and the UnitedStates in 1965-70 is 0.139, of which at least one-half is attributable to differ­ences in national origin. The observed difference for the waves that arrivedduring the 1970s is around 0.12, and over two-thirds of this gap is attributableto national origin. to

In contrast to the post-1965 cohorts, the results in table 1.7 show that na­tional origin played a different role among persons who migrated in the early1960s. These data do not indicate that immigrants in Canada were unambigu­ously more skilled than immigrants in the United States. Moreover, the differ­ences in the national-origin mix of this immigrant flow sometimes worked tothe advantage of the United States. The mean educational attainment of im­migrants in Canada would have increased from 10.5 to 11.2 years if Canadahad had the national-origin mix of the United States. The decomposition ofthe wage differential between the two host countries, however, does not yieldan unambiguous indication that either country had a more "desirable"national-origin mix.

The central implication of these results is clear. Differences in the national­origin mix of immigrants arriving in Canada and the United States since 1965are mainly responsible for the higher average skills and relative wages of im­migrants in Canada. In view of this finding, it is worth reassessing the rolethat immigration policy, and in particular a point system, can play in generat­ing a more skilled immigrant flow. To the extent that the point system is in­tended as a way of increasing the skill level of immigrants from a given sourcecountry, the results in tables 1.6 and 1.7 are discouraging. A point systemseems to have little effect on the education level or relative wages of specificnational-origin groups.

This does not imply, however, that the point system is ineffective. An alter­native, though little discussed, effect of the point system is to reallocate visasacross source countries. Consider, for instance, the impact of the educationalrequirements in the point system. A visa applicant is given one point per yearof education, and only fifty points are needed to "pass the test." Persons orig­inating in countries with high mean educational attainment are more likely toqualify for entry into Canada than persons originating in countries with loweducational attainment. The population of the source countries differs sub-

10. These education data are reported in Borjas (1991, table 2) and give the average educationalattainment of the population of the source countries in the late 1970s.

36 George J. Borjas

stantially in mean education levels. For instance, the average educational at­tainment is 3.2 years in Haiti, 6.1 years in Mexico, 10.7 years in the UnitedKingdom, and 11.1 years in France. ll It is likely, therefore, that the pointsystem plays an important role in determining the national-origin mix of theimmigrant flow.

The extent to which the point system actually redistributes visas amongsource countries has not been analyzed. As a preliminary way of establish­ing this link, I calculated the fraction of immigrants that migrated to Canada(out of the total number of immigrants into Canada and the United States) forforty source countries in the late 1970s. 12 The relationship between this"choice" variable and mean educational attainment in the source country issummarized by

(7) 10g[P/(1 - P)] -2.3035 +(- 3.58)

.1971 S,(2.67)

.178,

where P is the fraction of the immigrant flow that "chose" Canada, S is themean educational attainment in the source country, and the t-statistics are re­ported in parentheses. Equation (7) was estimated using a minimum X2

grouped-Iogit estimator. Evaluated at the mean probability, an increase of oneyear in the average schooling level of the source country increases the likeli­hood that immigrants "choose" Canada by about 3.6 percentage points.

This preliminary analysis thus suggests that the point system plays a subtle,but crucial, role: it biases the admission of immigrants toward national-origingroups that originate in high-income, high-skill countries. My findings implythat it is this feature of the point system that is mostly responsible for thedifferent performance of immigrants in Canada and in the United States duringthe post-1965 period. 13

11. It is of interest to determine the extent to which these findings are driven by the presence oflarge numbers of relatively unskilled Latin American immigrants in the United States. I reesti­mated the statistics reported in table 1.7 after omitting the sample of Latin Americans from theanalysis. Suppose, for instance, that there were no Latin American immigrants in the 1975-80cohort in either Canada or the United States. The average wage of immigrants would be - 0.144in Canada and - 0.173 in the United States. If Canada had the same national-origin mix as theUnited States, the predicted wage would be - 0.198, while if the United States had the samenational-origin mix as Canada the predicted wage would be - 0.099. Therefore, the results indi­cate that, although Latin American immigrants in the United States substantially reduce the aver­age skill level of U.S. immigrants, differences in the national-origin composition of the immigrantflow still favor Canada.

12. The forty countries included in this analysis are listed in Borjas (1987).13. The empirical analysis presented in section 1.4 also indicated a sizable decline in skills

among successive immigrant waves in both host countries, with the decline being much steeper inthe United States. I have shown elsewhere (Borjas 1992) that much of the U.S. trend can beattributed to the changing national-origin mix of immigrant flows. Preliminary calculations (notreported) indicate that national origin plays a weaker (though still important) role in explainingthe declining skills of immigrants in Canada.

37 Immigration Policy, National Origin, and Immigrant Skills

1.6 Migration Flows between Canada and the United States

The large migration flows between Canada and the United States providefurther evidence on the limitations and effectiveness of Canada's point sys­tem. 14 In 1980-81, nearly 850,000 persons born in Canada resided in theUnited States, and over 300,000 persons born in the United States resided inCanada. The emigration of Americans accounted for 8 percent of the foreign­born population in Canada, while the emigration of Canadians accounted for6 percent of the foreign-born population in the United States.

Table 1.8 reports the mean educational attainment and relative wages forseveral waves of transnational migrants. These data yield several interestingfacts. In general, Canadian immigrants in the United States do quite well inthe labor market. The most recent arrivals enumerated in the 1980 census earnabout 20 percent higher wages than American natives and have about 2 yearsmore schooling. In contrast, American immigrants in Canada are less success­ful. The most recent arrivals enumerated in the 1981 census earn 4.5 percentless than Canadian natives yet have 4.5 years more schooling.

In addition, the data indicate little growth in immigrant earnings over time(relative to natives). For instance, the U.S. census shows that the most recentarrivals enumerated in the 1970 census had 14.9 percent higher wages thannatives. By 1980, this differential had increased to only 17.2 percent. In Can­ada, the typical immigrant who arrived in the late 1960s earned 30 percentmore than natives in 1970, but earned only 10.6 percent more than natives in1980. There is little evidence of assimilation in these data. In fact, the Cana­dian census suggests the possibility of "disassimilation."

Finally, there was a sizable decline in skills among successive waves ofAmerican immigrants in Canada, but an increase among successive waves ofCanadians in the United States. In 1970, the newly arrived Americans had 6.5more years of schooling and earned 29 percent more than natives, but by 1980the most recent American immigrants had 4.5 more years of schooling andearned 4.5 percent less than natives. In contrast, the newly arrived Canadiansenumerated by the 1970 U. S. census had 1.4 more years of schooling and14.9 percent higher wages than natives, but the most recent Canadian immi­grants in 1980 had 1.9 more years of schooling and earned 20.2 percent morethan natives.

Some of the statistics in table 1.8 may be contaminated by the migration ofdraft avoiders to Canada in the late 1960s and early 1970s. A presidentialpardon allowing their reentry into the United States was declared in 1978.Because the empirical analysis below uses the 1971-81 Canadian censuses totrack the wages of cohorts of American migrants, it is possible that the influx

14. These flows have long been of interest to Canadian demographers. See Boyd (1981), Lavoie(1972), and the many references in U.S. Bureau of the Census (1990).

38 George J. Borjas

Table 1.8 Education and Wages of Transnational Immigrants, by Cohort

Americans in Canada Canadians in u.S.

1971 1981 1971 1981

Relative Relative Relative RelativeCohort Education Wage Education Wage Education Wage Education Wage

1960-64 15.698 .3924 15.262 .0248 11.366 .1248 12.756 .1427(5.01) (0.34) (4.21) (7.13)

1965-70 16.444 .2897 16.205 .1059 12.599 .1488 12.599 .1722 .(6.14) (2.59) (4.72) (7.00)

1970-74 15.985 .0819 13.748 .1124(1.81) (3.35)

1975-80 15.809 -.0454 14.604 .2021( -0.89) (7.90)

Notes: The t-ratios are reported in parentheses. The mean educational attainment of natives in Canadawas 9.907 in 1971 and 11.303 in 1981. The mean educational attainment of natives in the United Stateswas 11.515 in 1971 and 12.706 in 1981. The sample sizes are 1971 Canadian census, 511 Americanimmigrants and 28,049 natives; 1981 Canadian census, 924 American immigrants and 61,205 natives;1970 U.S. census, 3,430 Canadian immigrants and 20,978 natives; 1980 U.S. census, 7,083 Canadianimmigrants and 15,071 natives.

of the draft avoiders enumerated in the 1971 Canadian census, and their pos­sible return migration to the U.S. prior to the 1981 census, biases the analysis.

There are no reliable estimates of the number of draft avoiders nor of theirreturn migration rates. The 1971 Canadian census enumerated only 4,800American-born young men (aged 18-25) who had migrated between 1966 and1971. The 1981 Canadian census enumerated 4,250 American-born men aged28-35 (who had migrated in 1966-71). Both the size of this migration flowand the return migration rate are relatively small. It is unlikely, therefore, thatthe migration of Vietnam draft avoiders is driving the results of the analysis(and this flow could certainly not explain the increasing skills of Canadianimmigrants in the United States).

Within each host country, the samples of natives and of transnational mi­grants were used to estimate the earnings functions (1) and (2). I then pre­dicted the (relative) entry wage of the transnational migrants in each of thehost countries, as well as the growth rate after ten and twenty years in the hostcountry. These summary statistics are reported in table 1.9.

The most recent Canadian immigrants in the United States (i.e., the 1975­80 wave) entered the labor market with essentially the same wage as natives,while the most recent Americans in Canada entered the Canadian labor marketwith much lower wages than natives. This situation is quite different fromwhat was observed in the early 1960s. At that time, the most recent Canadiansin the United States had slightly lower wages than natives (though the differ-

39 Immigration Policy, National Origin, and Immigrant Skills

Table 1.9 Predicted Entry Wages and Growth Rates for TransnationalImmigrants in Canada and the United States

Americans Canadiansin Canada in U.S.

(I) (2) (I) (2)

Cohort1960-64 .2055 .0607 -.0509 - .0952

(1.90) (0.59) ( - 1.10) (- 2.21)1965-69 .1098 -.0426 -.0150 -.0509

(1.29) ( -0.52) ( -0.37) (- 1.36)1970-74 .0120 - .1174 -.0674 - .1182

(0.14) ( - 1.34) (- 1.47) (- 2.78)1975-80 - .2368 - .3275 .0521 - .0231

(-2.79) ( -4.06) (1.45) (-0.81)Growth rate at y = 10 years - .0053 -.0084 .0097 - .0119

( -6.79) (-5.98) (0.37) (1.55)Growth rate at y = 20 years - .0018 -.0018 .0046 .0059

(- 6.68) ( -5.91) (0.22) (1.69)Holds constant demographic No Yes No Yes

characteristics

Notes: The t-ratios are reported in parentheses. The vector X in the regressions underlying theestimates in column 1 include age and age squared. The regressions in column 2 add education,marital status, metropolitan residence, and an indicator of whether health limits work (availableonly in the United States).

ence was not statistically significant), while Americans in Canada entered thelabor market with much higher wages than natives.

The relatively better performance of recent Canadian immigrants in theU. S. labor market may be a result of a different selection process guiding themigration of persons across the U. S. -Canada border. In earlier work (Borjas1987), I argued that international differences in the rate of return to skills arethe main determinants of the skill composition of immigrant flows. The re­sults presented in tables 1.8 and 1.9 are consistent with this hypothesis ifCanada has a lower rate of return to skills than does the United States. In fact,the available evidence suggests that the Canadian income distribution is morecompressed than that of the United States, so that skilled Canadians are likelyto have greater incentives to migrate to the United States than unskilled Ca­nadians do (McWatters and Beach 1989).

Regardless of the validity of this hypothesis, the results presented in thissection suggest that the point system plays a much weaker role than wouldhave been presumed. Because of the skill filters explicitly built into Canadianimmigration policy and the absence of such filters in U. S. immigration policy,it is not unreasonable to expect that American immigrants in Canada woulddo well in the Canadian labor market and that Canadian immigrants in the

40 George J. Borjas

United States would be less successful. The facts, however, are exactly theopposite. The self-selection generated by the differential economic opportu­nities available to skilled and unskilled workers in the two countries greatlydilutes the expected impact of Canada's point system.

1.7 Summary

Because immigration policies in Canada and the United States differ in theirobjectives, the comparison of the economic impact of immigrants in the twocountries provides a benchmark for assessing the role played by policy indetermining the skill composition of the immigrant flow. This paper presenteda description of the trends in immigrant skills and labor market performancein both Canada and the United States, and interpreted these trends in terms ofthe underlying policy changes that occurred between 1960 and 1980 in bothhost countries.

The data provide a clear and unambiguous picture of the skills and labormarket performance of immigrants in the two countries. Immigrants in Can­ada are, on average, more skilled than immigrants in the United States. Thisresult is evident from comparisons of educational attainment, where immi­grants in Canada have about a year more schooling at the time of arrival thanimmigrants in the United States, as well as in terms of immigrant wages,where the wage disadvantage of immigrants (relative to natives) is substan­tially greater in the United States.

The empirical analysis suggests a simple explanation for the skill differen­tial. The average skill level of specific national-origin groups is about thesame in Canada and the United States, so that Canada's point system does notattract more skilled workers from a given source country. The national-originmix of the Canadian immigrant flow, however, is more heavily weighted to­ward national-origin groups that tend to perform well in both the Canadianand U. S. labor markets. It is this compositional effect that explains most ofthe observed differences in the educational attainment and wages of immi­grants in Canada and the United States.

In effect, the point system works because it alters the national-origin mix ofimmigrant flows. This finding has important, if unpalatable, implications forthe ongoing debate over the role that the skills of visa applicants should playin determining entry into Canada or the United States. To a large extent, skillfilters are effective because they alter the allocation of visas across sourcecountries. The data analyzed in this paper, therefore, suggest an importanttradeoff between the average skill level of immigrant flows and their ethnicdiversity. The existence and implications of this tradeoff are likely to play animportant role in future discussions of immigration policy.

41 Immigration Policy, National Origin, and Immigrant Skills

Appendix

Table lA.l Log Wage Regressions on Pooled 1971 and 1981 Canadian Censuses

(1) (2)

Variable Natives Immigrants Natives Immigrants

Intercept 1.0613 .9275 .3231 .4655(36.37) (15.52) (11.17) (7.96)

Education .0438 .0344(84.79) (43.25)

Age 0.0563 .0556 .0564 .0498(36.89) (19.16) (40.49) (17.80)

Age squared -0.0006 - .0006 - .0006 -.0005(- 36.55) (-19.08) (- 36.12) ( -17.07)

Years since migration .0043 .0054(2.06) (2.72)

Years since migration, .00002 -.00003squared (.39) ( -0.76)

1970-74 cohort .0488 .0519(2.73) (3.05)

1965-69 cohort .1576 .1584(9.66) (10.17)

1960-64 cohort .1206 .1597(5.84) (8.06)

1950-59 cohort .1139 .1597(5.04) (7.32)

Pre-1950 cohort .1046 .1773(3.28) (5.71)

Observation from 1971 -0.9651 -.9651 -.9427 - .9427census (- 248.35) (- 248.35) (- 238.28) (- 238.28)

R2 .399 .456holds constant demo-

graphic characteris- No Yestics

Notes: The t-ratios are reported in parentheses. The regressions in column 2 also control formarital status, metropolitan residence, and an indicator of whether health limits work (availableonly in the United States). The index indicating if the person migrated after 1975 is the omitteddummy variable. The sample size is 114,689.

42 George J. Borjas

Table lA.2 Log Wage Regressions on Pooled 1971 and 1981 U.S. Censuses

(1) (2)

Variable Natives Immigrants Natives Immigrants

Intercept .8298 .4387 - .1012 - .0483(17.43) (17.41) ( -2.18) (- 1.99)

Education .0558 .0442(63.12) (143.54)

Age .0560 .0628 .0490 .0494(24.05) (50.88) (22.31) (42.24)

Age squared -.0006 -.0007 - .0005 -.0005(22.27) (48.82) ( - 18.91) (- 38.05)

Years since migration .0053 .0090(5.07) (9.16)

Years since migration, -.0001 -.0001squared ( -4.00) ( -7.34)

1970-74 cohort .0588 .0659(7.95) (9.43)

1965-69 cohort .1395 .1090(14.86) (12.31)

1960-64 cohort .1967 .1358(15.64) (11.44)

1950-59 cohort .2414 .1554(15.08) (10.26)

Pre-1950 cohort .2798 .1523(12.92) (7.44)

Observations from - .6837 -.6837 -.6105 -.61051971 census (- 133.23) ( - 133.23) ( -125.07) (- 125.07)

R2 .192 .289holds constant

demographic No Yescharacteristics

Notes: The t-ratios are reported in parentheses. The regressions in column 2 also control formarital status, metropolitan residence, and an indicator of whether health limits work (availableonly in the United States). The index indicating if the person migrated after 1975 is the omitteddummy variable. The sample size is 210,732.

43 Immigration Policy, National Origin, and Immigrant Skills

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